• DECEMBER 31, 2003

Time to deliver...

Today is the last trading day of the calendar year 2003. The Sensex breached 5,900 levels yesterday, only to retrace its steps to close marginally below 5,800. The Sensex is once again, within a striking distance of the magical 6,000 mark! The Nifty is already trading at its all-time highs. Barring a couple of sectors like IT and FMCG, all others have managed to outperform the benchmark indices by substantial margins in 2003. On the back of over US$ 6 bn pouring into Indian equities by FIIs, Indian investors have had a dream bull-run this calendar year (up 74%).

However, apart from the fact that today is the last trading day of 2003, it is also the last day of the December 2003 quarter and beginning tomorrow, when investors come back to the markets after making merry on New Year's eve, their focus would shift away from the past (2003) and into the immediate future i.e. quarterly results. 2003 was witness to some intense buying by foreign investors. Apart from the fact that Indian equities were relatively under valued at the start of 2003 when compared to its global counterparts, foreign money came into Indian equities on 'expectations' of an improving performance by India Inc., which has largely been met till now. And now, once again, it is time to deliver for India Inc.

Like always, the first 'jerks' or 'triggers' would be provided by the Indian tech bellwether, Infosys' results, which are to be announced on January 9, 2004. It will be a 'jerk' if the results fail to meet 'expectations' and will be a 'trigger' for the entire software sector, if the software major manages to beat, not just expectations but also gives a positive outlook. It must be noted that the software sector has been an under performer in the current bull-run on the back of concerns of pressure on margins and the lagging global tech spending. However, any positive development or announcement on either of the fronts could bring this left-behind sector back into the reckoning.

While volatility would be the order of the day, or rather the month, during the results season, retail investors need to be cautious, as they are the worst affected in such volatile movements. They should refrain from playing the results and rather take a longer-term view on particular stocks. Further, investors, who have missed the current rally, in part or in full, should not get frustrated or tempted to invest. Rather, they should take a more pragmatic view of the current situation. Here, in order to assist the retail investor community, we would like to re-iterate a few points to be kept in mind while investing:

  • Decide upon the time horizon for which the equity investments are to be made. However, remember, short-term investments are not investments in the true sense, but more of speculation. Visualise a longer time horizon and wait for companies to deliver.

  • In order to be sure that companies will deliver good performance in the future, invest in companies with sound fundamentals and strong business models. Another very important aspect while investing in a company's stock would be to consider the credibility and the track record of the company's management because it is ultimately the people at the top who are responsible to make the company perform.

  • It is not that there is a lack of fundamental stories existing amongst lower priced stocks. However, what an investor needs is a thorough understanding of the company, the business and industry it is into and how can the company capitalise on the upturn and at the same time, tide over the downturn.

  • Last but not the least, do not panic during stock market downturns, do not let greed overtake fundamentals during stock market booms and avoid the herd mentality (as it is a very high risk gamble).

To conclude, while we are certain that India Inc. (on a broader scale) will continue to perform well in the medium to long-term, it is time to sit back and re-look at stock specific fundamentals and valuations, especially, which have outperformed the benchmark indices by huge margins and make sure if their current valuations justify their growth prospects.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407